Death is complicated enough in the cryptosphere when a private investor dies with the private keys to their fortune. But the pain is amplified exponentially should the deceased be the CEO of a digital currency exchange responsible for the safekeeping of millions of dollars. The death of Gerald Cotten, founder and chief executive officer of crypto exchange Quadrigacx, has led to the loss of CAD $190 million (~ U.S. $145 million) stashed in the platform’s cold storage wallets.
Quadrigacx Seeks Court Protection From Creditors
Canadian exchange Quadrigacx this week filed for protection from creditors in the Nova Scotia Supreme Court, claiming to have failed to locate or access the money since the death of Cotten on Dec. 9, according to a report by local newspaper The Globe and Mail.
Canadian Exchange Insolvent After CEO Dies With Keys to $145M of Cryptocurrency
Significant customer investments are understood to be locked up following the loss of cold storage wallets, especially since Quadrigacx was the largest crypto exchange in Canada by traded volume. One customer is reported to have lost $700,000.
Cryptocurrency can be lost, particularly if the owner doesn’t share the private keys that allow access to the wallet to a third party by way of legacy management. Chainalysis estimates that about 25 percent of all bitcoins now in circulation (valued at roughly $23.5 billion) have already been lost forever, with death accounting for a sizeable portion of the losses.
Following the death of Cotten, Quadrigacx has reportedly lost 26,488 BTC, 11,278 BCH, 11,149 BSV, and 35,320 BTG. About 199,888 LTC and 429,966 ETH has also been lost.
‘A Lone-Wolf Operation’
In her affidavit, the CEO’s widow, Jennifer Robertson, states that her husband was the sole director and officer at Quadrigacx and its sister companies at the time of his death.
Canadian Exchange Insolvent After CEO Dies With Keys to $145M of Cryptocurrency
The company’s misfortune may have resulted in the chief executive officer’s lone-wolf style of operation. “To the best of my knowledge, most of the businesses of these companies was being conducted by Gerry whenever and wherever he and his computer were located,” she stated.
A bankruptcy hearing is scheduled for February 5 at Nova Scotia Supreme Court, with Ernst and Young Inc to be appointed as an independent monitor. Quadriga’s board of directors has posted the legal steps to be taken on their website, stating:
For the past weeks, we have worked extensively to address our liquidity issues, which include attempting to locate and secure our very significant cryptocurrency reserves held in cold wallets, and that are required to satisfy customer cryptocurrency balances on deposit, as well as sourcing a financial institution to accept the bank drafts that are to be transferred to us. Unfortunately, these efforts have not been successful.
The treasury that held Quadrigacx funds was allegedly personalized around the late CEO who had to use his personal account for company funds, as banks kept as skeptical remove away from the crypto aspect of the business. In the absence of a company account, third parties were used to facilitate payment and receipt of funds from users, according to the CEO’s widow.
The exchange’s troubled relationship with banks resulted in the loss of $28 million when a portion of its funds were frozen in January 2018. The Canadian Imperial Bank of Commerce (CIBC) froze the funds citing ownership concerns. The company initiated ongoing legal action to challenge the action.
Canadian Exchange Insolvent After CEO Dies With Keys to $145M of Cryptocurrency
A Loss That Could Have Been Avoided
Posthumous loss of bitcoin can be avoided if investors make plans for having this information disclosed to their heirs after they die. In April 2018, U.S. investor Matthew Mellon died, leaving his $500 million crypto fortune permanently inaccessible.
“Investors need a storage execution strategy for account information, as well as advice on the implications regarding the deceased estate, including access to accounts, distribution to beneficiaries, and tax implications,” Eran Brill, an investment management director at Stonehage Fleming in South Africa, explained last year.